§ The Under-Secretary of State for Scotland (Mr. Malcolm Rifkind)
I beg to move,That the draft Undertaking between the Secretary of State for Scotland and Hay and Company (Lerwick) Limited and John Fleming and Company Limited, which was laid before this House on 5th December, be approved.It may be for the convenience of the House if, with this, we take the other two motions on the draft undertakings.
§ Mr. Rifkind
The three undertakings before us tonight are made under the Highlands and Islands Shipping Services Act 1960. With permission, I shall decribe the general background and then speak about each undertaking separately.
The Government are committed through their election pledges to the survival and prosperity of the island 108 communities of Scotland. Hon. Members will recall that, with that aim in view, the Government introduced in July 1979 assistance for the ferry services to the northern isles through an undertaking with P and O. The Government also substantially increased in 1980 its grant to Caledonian MacBrayne's ferry services on the West Coast. It is our intention that the new and increased financial commitments will be maintained in the current year. Decisions on the levels of assistance for ferry services in 1981–82 will be announced soon.
In March last year my right hon. Friend issued a consultative paper on "Sea Transport to the Scottish Islands". That paper discussed the pros and cons of moving to a road equivalent tariff system of charging for ferry services and also discussed the possible benefits of route licensing and tendering. Comments on the consultative paper were received from a wide range of interested parties. My right hon. Friend and I are studying proposals in the light of those replies and hope to be in a position to announce our conclusions shortly. But major changes in the present basis of support for ferry services can only be achieved gradually over a period. In the meantime, we are concerned to carry forward the task of easing the burden of sea transport costs, especially freight costs, on services to the Scottish islands. The undertakings before us tonight are designed to take that process forward.
In promoting the undertakings the Government are seeking to achieve three aims in the interests of the islands' communities. The first is to reduce the time and cost involved to individuals and firms of importing and shipping out basic materials, which is thought to be a serious impediment to the islands' economies. As I shall explain, Government assistance will be clearly shown as a reduction in the normal tariffs of the companies concerned. While we cannot guarantee that shop prices will be reduced, I sincerely hope that firms take advantage of the reduced rates and pass on their benefits.
Secondly, it is a specific aim to reduce particularly the cost of exporting island products, helping to make them more competitive with the mainland. That should provide a stimulus to existing firms and encouragement to potential firms. With that in mind, we have sought to provide a higher level of assistance on traffic from the islands to the mainland.
Thirdly, we are seeking to redress the balance of support between bulk carriers and ferry operators to the islands. There is competition at the margin and the bulk operator, especially on the West Coast, has increasingly been at a disadvantage as we have increased the assistance towards ferries. I am accordingly proposing a degree of special assistance to Glenlight Shipping. I stress that our aim here is to serve the interests of the islanders and not any particular company.
I now turn to the undertaking with Shetland Line. The purpose of this draft undertaking is to allow Shetland Line to make tariff reductions on the containerised general cargo services which the company operates between Grangemouth and Lerwick. The company also operates services carrying oil related goods from Grangemouth to Sullom Voe. The Secretary of State is proposing to assist only the non-oil services. The tariff reductions which Shetland Line will be able to make will be the same as those which P and O already offer with Government support on services to Orkney and Shetland. In other words, Shetland Line's freight charges will be reduced by 42½ per cent. for freight going south from the islands and 109 by 12½ per cent. for freight going north to the islands. In the view of the Government, which has been confirmed in a number of discussions with Shetland Islands council and Orkney Islands council, that percentage reduction arrangement will attract the greatest benefit to the islands' economies.
I must emphasise that this is not a deficit grant to a loss-making company. It is a direct Government subvention to enable specific tariff reductions to be made for the benefit of the users of a particular service. The Secretary of State proposes to pay to Shetland Line a grant which will be equal to the amount of revenue which the company forgoes as a result of making rate reductions requested by him, subject only to small adjustments to reimburse the company for any extra costs directly related to the operation of the undertaking.
If the undertaking is approved, and the scheme I have described comes into force, it will cost around £20,000 in this financial year assuming that the subsidy scheme will start on 1 February. That assistance will be met out of existing public expenditure provision. A full financial year's assistance at current rates and current prices would cost some £250,000.
I should now like to speak about Hay and Co. This is a Shetland-based firm which carries exports from Shetland, and imports—principally fuel and building materials for local construction work—into the islands. In principle, the draft undertaking with this company is the same as that with Shetland Line. However, there are some differences in practice between the operation of the two undertakings. Hay and Co. does not operate a single service to one mainland port. Although it offers a public service to Shetland, it is a service geared to the customers' requirements. The company's two vessels therefore operate from a number of ports. Because of the diversity of the traffic handled by the company, it is our intention—until a clear pattern emerges—to have in the first instance specific cases referred to the Department for approval of assistance. Some of the goods the company carries are taken direct from Shetland to the Continent. Other cargoes come direct from the Continent to Shetland. Given our present international obligations, it will not be possible to assist these cargoes.
A further difference is that much of the traffic which Hay and Co. carries into the islands is for resale on its own shop premises. The undertaking contains a specific clause which requires the company to pass on the benefit of and tariff reductions on these items directly to the final consumer in Shetland. There will therefore be direct and visible benefit from this assistance to consumers in the islands.
§ Mr. J. Grimond (Orkney and Shetland)
Does that mean that subsidies will not be payable on shipments to the Continent?
§ Mr. Rifkind
That is correct. Because of our international obligations in relation to the payment of subsidies to commercial concerns, it would not be appropriate for a subsidy on international journeys to be provided to a particular company.
Other than the remarks that I made prior to that intervention, the undertaking with Hay and Co. provides much the same detailed safeguards and technical features as the undertaking with Shetland Line. The Secretary of State proposes, if the undertaking is approved, to 110 introduce a scheme of precentage rebates from 1 February. This is likely to cost some £15,000 in the current financial year and expenditure in a full financial year at current rates and current prices would be some £150,000. This will be met out of existing public expenditure provision.
The third company covered by the undertakings before us tonight is Glenlight Shipping. Glenlight is the principal private sector carrier of bulk cargoes on the West Coast. Perhaps this is better known as the puffer trade, although the days of the traditional "Para Handy" vessel are long past. Over half Glenlight's trading comprises services within the area covered by the Highlands and Islands Shipping Services Act.
These Highlands and Islands services operate at a loss at present and the size of the company's losses has increased over the last year partly as a result of a combination of the effects of the recession and the costs of rationalising and improving the crane equipment of the Glenlight fleet. This modernisation is of course designed to make the company's Highlands and islands trading profitable. In the short term, however, there is little prospect of the company meeting its losses from increased freight charges as these would be so great—and would have to be unevenly applied between the islands—as to produce a transport cost which we would consider as unbearable by the largely very remote communities served by the company.
The Secretary of State is therefore proposing to give limited direct financial assistance to Glenlight for a short interim period to enable the company to maintain its existing levels of service. We propose, therefore, to introduce a scheme of assistance which will enable the company to continue to provide its present level of service while it completes its rationalisation programme to slightly larger vessels and improves the cargo handling abilities of these vessels.
This is not, however, to be a simple deficit grant. The Secretary of State proposes a combination of a short-term contribution towards any trading deficit made on the company's Highlands and islands services and percentage rebates on its tariffs. This will allow the Government, first, to preserve Glenlight's services to the islands by a limited subvention to the company; and, secondly, to provide assistance directly to the islands' communities through reduced transport costs.
In addition, the system is designed to allow the phasing out of the deficit subsidy with a measure of Government assistance being shifted annually from the contribution to deficit to further percentage reductions in rates. The "hump" in costs caused by the transition to more appropriate and efficient vessels will thus be evened out and the company will be returned to full commercial operations with assistance to the islands being given through percentage reductions in commercial rates. The length of this period would be determined by experience of actual trading conditions. But the Secretary of State expects it to be short.
The scheme proposed comprises the following elements. First, a contribution to the company's projected deficit on Highlands and Islands trading. In the first year of operation the Secretary of State proposes to pay a maximum of £100,000 in the current year towards the company's deficit. So there will be an incentive for the company to reduce costs and increase its efficiency. The Secretary of State's contribution will be based on an 111 estimate of the deficit agreed between the Scottish Office and the company. If the actual deficit is less than the contribution made a clawback arrangement will operate.
The scheme also includes a reduction, set for the moment at 12½ per cent., in Glenlight's commercial rates. Like the East Coast scheme, this reduction will be identified separately on the company's invoices to its customers as direct Government assistance to the user. Excluded from this proposal will be Glenlight's trading outwith the Highlands and islands and some other specific operations, for example, those involving charter hire of Glenlight vessels by the United States navy.
The contribution towards Glenlight's deficit on Highlands and islands trading will be reduced in real terms with assistance being transferred to increased percentage reductions on freight rates. The transition from deficit funding to fully commercial operation will be monitored and individual stages will be agreed between the Secretary of State and the company so that there will be no undesirable suddenness in increases in freight rates to the islands communities—who will, in any event, be cushioned by the percentage rebate scheme.
The draft undertaking also include the possibility for making capital grants to Glenlight to encourage the development of efficient operation by assisting with the company's already well advanced programme of modernisation. I would not, however, expect this device to be used except in exceptional circumstances.
In this case, if the undertaking to Glenlight is approved, the Secretary of State proposes to spend around £110,000 in the current financial year, made up of a £100,000 contribution to the company's 1980 deficit and some £10,000 in repayments for percentage reductions in freight rates. This in a full financial year is equivalent to around £250,000. The rebate scheme will come into effect on 1 February. Its cost will be met out of existing public expenditure provision. I am aware that there is widespread support in the Highlands and islands for these measures which will assist the islands, and I commend the draft undertakings to the House for its approval.
§ Mr. Donald Dewar (Glasgow, Garscadden)
It will be no surprise to the House that the Opposition give a welcome to these undertakings and proposals, although there are a number of individual points—some of which have been partly clarified by the Minister—on which a little more information would be of assistance to hon. Members and to the public at large.
The basic scheme which is being introduced for all these operators is a fairly familiar formula, because it is the one that was used in the earlier undertakings with P and O Ferries. It is, of course, a system whereby there is a percentage reduction in the fare tariffs rather than a direct loss subsidy. We gather from what the Minister has said that it is an amalgam of these two systems in regard to Glenlight, but I take the point that the Government's intention is that the emphasis should be on subsidy for the user rather than a method of trying to meet a trading loss of the individual and specific company.
I shall want to read—as I am sure other hon. Members will—the details which the Minister announced. He gave us a good deal of information about the specific schemes in each particular case. May I ask him about the extra costs 112 which will fall, as he gave us individual fragmented figures and I have not an entirely aggregate figure in my mind at the moment?
In the year 1980–81, as I understand it, the Government intended to spend about £1.6 million in subsidies of this kind. Presumably that covered the original undertakings which have gone through the House in the past. I have had the advantage of seeing the correspondence concerning Glenlight that was given to my right hon. Friend the Member for Glasgow, Craigton (Mr. Millan) by the Scottish Office. A letter of 28 November indicates—this also became clear from the Minister's remarks—that Glenlight will be getting assistance in 1980–81.
Will the Minister make clear whether the £110,000,—which I gather is the total figure to which he is referring for that year—is in that £1.6 million, and, if it is, whether the money that is to be spent in support for Shetland Line and Hay and Co. (Lerwick) Ltd. will also be in that £1.6 million? The Minister was talking respectively of £150,000 and £250,000 in a full financial year, and presumably certainly in the year there will be a very considerable impact. I wonder when he will be in a position—or whether he is now in a position—to tell us what that figure of £1.6 million will become, not only in terms of these particular undertakings but also the global total which involves the P and O subsidies as well.
There is scepticism in certain quarters about the tariff reductions. It has been put to me that the theory about them is all very well. It is that a commercial rate is set that will cover the companies' operating costs and that that will give a reasonable profit margin. Independently of that, however, there is to be a reduction of fares because of the subsidy. Would the companies require the permission of the Secretary of State to increase fares? The undertakings are clear that if there is a variation in the tariff reductions—the 12½ per cent. and the 42½ per cent., to take the figures for P and O Ferries, which will apply in the case of the Shetlands—the written permission of the Secretary of State would be required. If those percentages were not being varied and the shipping companies wanted to put the fares up substantially, would they need the imprimatur of the authorities, or could they do it entirely off their own bat?
In November 1980 P and O Ferries greatly increased their fares. That created a great deal of indignation among the consumers in Orkney and Shetland, if the press reports are correct. We all approve of the subsidies benefiting the consumer. Many of us are worried, however, that if there were a mark-down of 12½ per cent. or 42½ per cent., there would be a compensating rise in fares and the consumer would be left without benefit while the operators enjoyed a considerable hidden benefit. Will the Under-Secretary say a word about monitoring and indicate what provision there is for alteration of the fares structure, as distinct from the subsidy formula?
Will the hon. Gentleman say a word or two further about paragraphs 12 and 13 of the Glenlight undertaking? I appreciate his point that these are capital grants to help with the modernisation of the fleet. But to what extent does he expect calls to be made upon them? There have been detailed discussions with Glenlight, so presumably thre is some indication of the company's precise capital requirements. There is speculation in some quarters about what they will be used for and whether they will enable Glenlight, for good or for ill, to move to a wider sphere 113 of operation by investing in rather more ambitious craft. We must have a good deal more information about the likely costs and intentions here.
Although we welcome the undertakings as a useful attempt to contribute to the economy of the islands by tackling the considerable transport costs, at another level they are very much a matter of making and mending. To use a phase of my elders and betters on these Benches, it seems to be a case of hudging and fudging. We have been waiting for a long time for an announcement from the Minister on the general future shape of Highlands ferries and shipping services.
I might outstay my welcome if I tried to rehearse the history of the road equivalent tariff. It was a manifesto commitment by the Tories. We are entitled to know whether these specific undertakings for specific shipping operators are an interim short-term measure before a decision is reached on the road equivalent tariff, or whether the patching is to continue for a considerable time and the road equivalent tariff is to be pushed out of sight and forgotten because it is an embarrassment to the Government. We want a general indication so that we can consider these undertakings in that context.
Labour Members are obviously sympathetic to the concept of the road equivalent tariff. However, we are conscious that it is a rigid mathematical formula. If one takes the average vehicle's operating costs, multiply it by the length of the vehicle and by the length of the crossing, and if one puts in an arbitrary divine control element, one gets a rigid formula. If that is applied to the longer crossings to the more remote islands, it may have some very unfortunate consequences.
We should want to consider carefully the results of a road equivalent tariff if it is introduced simpliciter. Nevertheless, it was a manifesto pledge. In addition, a number of useful variants, such as freight only, might be introduced. The Minister owes us some explanation of the Government's thinking. There is a newspaper report of 17 September on the Minister's press conference on the road equivalent tariff and on the many submissions made in reply to the consultative paper. He came out with a typical formula. He said that:'the Government remained committed to a policy of 'moving towards the principle of RET'.That is not exactly a ringing declaration of principle. There is just a suspicion of qualification about the phrase about moving towards the principle. I do not know whether we shall ever get past the principle to the reality. Perhaps we shall spend many years moving towards it without reaching it. However, that suspicion is compounded by the fact that these undertakings—which we assume will have a lengthy life—are being debated so late at night.
I need hardly remind the Minister that we were promised an answer on the question of road equivalent tariff a long time ago. The last reference to it was in a parliamentary question in my name that was answered on 19 December. As such answers tend to do, it referred me to an answer printed on 27 November 1980 to a question asked by a Liberal Member, the hon. Member for Inverness (Mr. Johnston). The Under-Secretary said that there wasa wide range of views …"—that is not surprising.These are being considered and my right hon. Friend hopes to announce his conclusions early in 1981."—[Official Report, 26 November 1980; Vol. 994, c. 122.]114 It is a stroke of luck that it is now early 1981. Who knows? Perhaps the Minister will be able to announce those conclusions, or at least speculate about them, tonight. If not, perhaps he will be able to define "early". We should then be able to look forward to an early, definite date.
I hope that the Minister will be able to say more about the timing of the road equivalent tariff decisions and their effect on these undertakings. I also hope that he will say a word or two about the plan in the consultative document to put routes out to tender. Perhaps he will also mention the other important shipping subsidy, namely, the one given as a loss deficit help to Caledonian MacBrayne. It operates on much the same territory as Glenlight, although not necessarily in competition with it. Last year £5.1 million was involved. There has been great speculation. I understand that Caledonian MacBrayne has advised the Minister that if fares are not to be substantially increased, and if services are not to be cruelly cut, it will need about £7 million. Some preliminary moves have already been made concerning the Clyde cruising programme.
When will we hear what the outturn for the year is as regards Caledonian MacBrayne? That organisation made great efforts to get the relevant figures for the coming year to the Minister by October 1980. January is a critical marketing period. The company is now in a difficult position. It cannot price effectively for the important summer trade.
What plans are there to alter the pattern of the subsidy, and who is likely to receive subsidies on the Caledonian MacBrayne routes as currently held?
The hon. Member for Argyll (Mr. MacKay) was recently quoted in the Glasgow Herald. He referred to the prospect of substantial fare increases or cuts in services by Caledonian MacBrayne. I sympathise with the hon. Gentleman. He said:These suggestions are horrifying.He then went on to say:If MacBrayne can't compete with private enterprise, it should get out.I hope that the hon. Member for Argyll's usual intemperate advice will be ignored by the Government in the interests of his constituents. But if the Minister has in mind making changes in that set-up, this is a convenient opportunity for him to tell the House. Of course, the House may not be entirely receptive to his ideas, but it would be glad to know what they are.
We take the road equivalent tariff matter very seriously. I do not want to sound over-zealous about seeing the Government sticking to their manifesto commitments, because there are many that I do not wish them to stick to, but this is rather more benign and desirable than most of its colleagues in the manifesto. We are worried about what is happening in this respect. Judging by the correspondence with Glenlight, there was a great deal of travail before the present undertakings saw the light of day.
The Minister, in his letter of 28 November, with charming simplicity, said that the problem lay in ensuring that the money was available. I recognise for all Ministers the problem of ensuring that the money is available. Will the money be available for all these grandiose schemes, such as the road equivalent tariff, with which the Minister has titillated our palates during the months since the general election and on which he tried to obtain votes at the election?
115 Transport costs for the islands will be significant. The last figures that I saw on the Aberdeen-Lerwick line for a fully laden lorry were getting on for £400 and for an unladen lorry £175. These are substantial charges. If anything can be done about this matter, by the introduction of road equivalent tariff or any other move, the House would be grateful to know of it and be anxious to support it.
I noticed with pleasure the obligatory reference to Para Handy that some intelligent civil servant wrote for the Minister. It was nice that that cliché should not be forgotten when we talked about the puffer trade. It is a romantic subject, but we should remember that it is an important part of the communications links with the islands and that it has to be run as a business.
I hope that this undertaking will allow these valuable services to continue. I hope also that we shall hear something about the long term and will get some of the answers to the longer statutory questions in connection with road equivalent tariff that we are entitled to ask.
§ Mr. John MacKay (Argyll)
In following in debate the hon. Member for Glasgow, Garscadden (Mr. Dewar), who I think welcomed these undertakings, I should make it clear that I welcome them.
I want to speak specifically about Glenlight Shipping Ltd. because it serves not only the islands but the remote mainland parts of my constituency by carrying bulk cargo which is not carried on the roll-on/roll-off ferry system—for example, coal, fertiliser, limestone and roadstone.
Obligatory references have been made to Para Handy and the "Vital Spark", but we have come a long way since then. I do not think that the new vessels—which are called mini self-discharge bulkers—can be half as romantic as puffers or Para Handy. However, they carry out the important role that was fulfilled by the puffers before them. They carry coal to islands such as Iona. The romantic aspect still exists, because once a year they ground themselves on the sand and the coal is unloaded. That is important. If it were not for that, it would be extremely difficult to carry coal to Iona or to many other islands.
One place that has been in severe trouble this winter on a remote mainland part of Argyll, the Ardnamurchan peninsula, has been Strontian, after which the element strontium was named. Unfortunately, it does not have its own private nuclear power plant, despite strontium, and it needs coal. Earlier in the winter there was a danger that the company would not be able to deliver coal there. I hope that that service will be resumed as a result of this undertaking.
The hon. Member for Garscadden rightly mentioned that bulk carriers fitted into a jigsaw which also contained the roll-on/roll-off carriers, but that they had different purposes and it is not easy to see the Highlands and islands existing without both. That is the important part of this undertaking. Up to now, Governments have subsidised the ferry services. Under the present Government, for the first time a Government have recognised the importance of the bulk carrier. They should recognise it a little further and look at more consequences of it than just that.
116 I do not want to go very far down that road, but I think that the sea is an important highway which perhaps we have neglected, and not only the sea but also the waters of our inland waterways. Perhaps with the cost of fuel and the rising price of oil in the future it will be more important to carry more by sea, where it can be done economically as long as one is not in a great hurry. For many of the items I have mentioned, such as coal, if it takes a day or two to deliver them, so be it. Perishables, of course, are in a different category.
I had not intended to mention one matter, but if the two speakers on the Front Benches can mention matters which are not strictly within the headings on the Order Paper perhaps I can do so, too. On the present grant negotiations with Caledonian MacBrayne, the position, as the Minister knows, is that some time has elapsed since Caledonian MacBrayne went to Seaham. I understand the Government's great difficulty. Once again, Caledonian MacBrayne is asking for a very considerable extra sum of money. Last year the Government were very generous to the company—certainly in the light of the much smaller grants given in the five preceding years by the Labour Government. But the company has come again.
The problem is that as we run into January, as the hon. Member for Garscadden says, Caledonian MacBrayne has still not issued a definitive timetable. Therefore, Mr. Deputy Speaker, if you wish to go to my constituency on holiday, which would be an extremely wise thing for you to do, it is at present rather difficult to work out what your travel arrangements might be as the timetable has not been issued. Indeed, for one of my islands we still do not know on which three days of the week the boat will sail. As you will appreciate, Mr. Deputy Speaker, this makes life very difficult for the people who are trying to encourage tourism on the West Coast. I urge the Minister to try to reach a final decision and a final agreement between the Scottish Office and Caledonian MacBrayne as quickly as possible.
I also mention the consultative document on road equivalent tariff and all the documents which have come in as a response. I am not surprised that this has taken some months, given the nature of the responses and their variation. I have not read any two which absolutely agree with each other, which must make the task of putting them all together very difficult.
Much of this has arisen from what is claimed to be done in Norway but I have read a great deal of conflicting evidence over the last few months that perhaps Norway does not do exactly what some think it does. My hon. Friend the Minister visited Norway last autumn. I wonder whether he will consider issuing some kind of paper to tell us what he found in Norway. That would be very useful. There have been conflicting letters and conflicting articles which suggest that Norway does not run an RET system. The system that it nearly runs, if it nearly runs one, is run only on a very limited number of routes—not at all like the important long sea routes that we have to some of the islands off the West Coast. Therefore, the Norwegian system is not really applicable to, say, the route to Tiree and Colonsay, or to Islay, or the longer routes out to the constituency of the right hon. Member for Western Isles (Mr. Stewart).
In the light of all the conflicting reports about Norway, such a paper would be useful—unless the Minister organises a trip for all of us who are interested to look at matters on the ground in Norway. [HON. MEMBERS: 117 "Hear, hear."] There might then be a sudden burst of interest in transport to the Western Isles. That appears to be so tonight. I see two hon. Members from the central belt of Scotland who seem to wish to participate in the debate. Perhaps they have heard that there is to be a trip to Norway to look at the transport system. Will my hon. Friend explain what he found in Norway and how it applies to our situation?
I rashly said to colleagues that the debate would not last for an hour and a half. They will take a dim view if I prolong it. However, I thank my right hon. and hon. Friends for their help. The cargo boats play an important part in the interlocking transport system to the islands. It has been an anomaly that the roll-on/roll-off ferries and the other ferries of Caledonian MacBrayne have received a subsidy, whereas the others, which are also doing an important job, have received no help.
The help is yet another example of the carrying out of our manifesto commitments. We welcome the hon. Member for Garscadden to the Manifesto group. I hope that all hon. Members, regardless of party, will welcome the Government's decision. It is important for those who live in far-away places, with historically difficult transport problems. I speak for all my constituents on the islands and the mainland served by these modern successors of the "Vital Spark" when I thank my right hon. and hon. Friends for their help.
§ 11.1 pm
§ Mr. Donald Stewart (Western Isles)
I welcome the draft undertakings.
Oppositions look favourably on road equivalent tariffs, as the hon. Member for Glasgow., Garscadden (Mr. Dewar) made clear. When in Opposition, the Government made a commitment to introduce the tariff. However, two years ago in the Scottish Grand Committee I got short shrift from the right hon. Member for Rutherglen (Mr. MacKenzie) when I pressed for the tariff. I ask the present Minister to stand and deliver on his election commitment. I hope that not a great deal of time will elapse before the Government present a scheme for road equivalent tariffs. It need not be a rigid formula. Variations other than those concerning size of vehicles and length of route can be introduced.
I do not know what scheme operates in Norway. However, I visited Norway three of four years ago with colleagues from the House. We learnt of some islands well inside the Arctic Circle. The Government in Oslo believed that the people in the far north of the country should have the same chance of economic existence as the people in the far south. I do not know the details, but there were frequent shipments from the far north of the Norwegian mainland to the islands.
I wish to deal with the undertaking with Glenlight Shipping Ltd., which is extremely welcome in my constituency where the company operates. Without Government assistance, the company would have to enforce unbearably high rates or possibly withdraw the service, which would be drastic. The company provides a valuable service, delivering bulk cargoes to out-of-the-way places. If it was withdrawn, the cargoes could not come in by lorry or any other method. It is a vital link for us.
I raised one omission in the undertaking over a year ago with the Scottish Office—the question of assistance to the company in Scalpay in the Isle of Harris that carries bottled 118 gas throughout the islands. That is a commodity that cannot be carried on the normal roll-on/roll-off ferries. I do not expect a reply to that tonight, but I hope that the Under-Secretary will take it up with his right hon. Friend.
I congratulate the Government on this contribution to meeting their commitment to assist the island authorities. It will be greatly welcomed by, and of great assistance in, my constituency.
§ 11.5 pm
§ Mr. J. Grimond (Orkney and Shetland)
We are discussing the motions at a time when my constituency is in considerable difficulties over shipping. We are suffering the effects of strikes, bad weather and breakdowns. This emphasises the total dependence of islands upon the shipping services, and, of course, the air services.
Apart from such difficulties, year in and year out we face extremely high freight charges and fares, and constant increases in them. The Minister said that they were thought—I think that that was his word—to be a severe handicap to the island. I can assure him that it is not only thought; they are, on all the evidence, a very severe handicap.
I was glad to hear that the hon. Gentleman's party is pledged at least to maintain the islands in being, and that these measures are part of the redemption of that pledge. I was also glad to hear that this assistance will be based on the 42½ per cent. for outgoing cargoes and 12½ per cent. for ingoing cargoes which is already paid to the ferry services.
I was glad, too, that we shall soon hear what the new scheme of assistance to the ferry services may be. This is not the time to debate the road equivalent tariff in detail, but I have serious doubts about it, though I do not want to look a gift horse in the mouth. It may turn out all right, but at present it seems to be immensely complicated and illogical in certain parts of its proposals, and its results appear to be unpredictable—so much so that I understand that some islands will hardly gain from it at all.
Therefore, the Government need to look very carefully at the road equivalent tariff, if that is to be their instrument for assisting us. Anyway, I am glad to hear that assistance for the ferry services is promised, and promised soon.
The undertakings provide valuable assistance to the shipping services in my constituency, particularly in Shetland. I have pressed for that assistance for some time, and have pointed out the unfairness of depriving other companies of any assistance while P and O receives it. At one time it seemed possible that financial stringency might lead to such assistance being postponed. I congratulate the Minister on having overcome that difficulty and producing the undertakings now. They seem to me to have several advantages.
First, it is clear that the reduction in freight charges which will result will go to the users of the services. I have always stressed that that is an essential part of any subsidy scheme.
Secondly, the undertakings that go to the heart of the matter—straightforward percentage assistance over freights. I believe that that is a simpler and more effective way of subsidising transport than the road equivalent tariff.
Thirdly, the undertakings will assist bulk shipping as well as other types of shipment. To take one example, they 119 will be of great assistance to Messrs Sandison in Unst, the most northerly island of the British Isles, in their export of talc.
There is a widespread belief that oil has proved an unmitigated blessing to Shetland and Orkney, but that is not so. First, freight charges have risen just as steadily in spite of oil. Secondly, the traditional industries have been put in considerable difficulty owing to oil, through loss of labour and the increase of some costs. It is essential that firms such as Sandison should keep in business and prosper, so that they will exist when the oil boom is over.
I was a little puzzled by some differences between the undertakings, but the Minister has gone some way to explain them. For instance, in the case of Glenlight Shipping the grants are said to be for the support of such services as well as to enable tariff reductions to be made. In the case of Hay and Co. and the Shetland Line, there is no mention of support of the services. I now see that, as I understand it, that is because Glenlight is trading at a loss, and therefore the grant is partly to keep the service going.
There is then the discrepancy that Glenlight is entitled to capital grants, while the other two lines are not. I do not begrudge it its good luck, but has the Minister had any discussions with Hay and Co. or with the Shetland Line about the replacement of their vessels? This is a matter of grave difficulty for small shipping companies. I hope that a similar concession may be made to them if it proves necessary.
In paragraph 4 of the undertaking affecting Hay and Co. there is a provision that the company can benefit in a manner which I do not think occurs in the other two measures. I suppose this is because Hay and Co., as a large trader as well as shipowner, is entitled to get the benefit on the goods in which it trades.
§ Mr. Rifkind
The right hon. Gentleman is correct. There is the requirement that Hay and Co. has to pass on to the consumer any reduction in the selling price of its produce in its own shops when it has had the benefit of the importing reductions.
§ Mr. Grimond
I am sure that Hay and Co. will be only too happy to do what the Minister has described. I am not certain how the process will be monitored. All too often prices go up and obscure whatever subsidy may be given. I am grateful, however, that the Minister has confirmed the point.
I understand that the Shetland Line is to get about £20,000 in the remainder of the present financial year and about £250,000 in a full year while Hay and Co. is expected to get about £15,000 in the remainder of the financial year and about £150,000 in a full year. I assume that the measures come into force at once and payments will be made on all trading that comes within them from this moment onwards.
§ Mr. Grimond
I assume also that the figures are at current prices. Although the measures, I imagine, will be kept in operation for some time, the figures can no doubt be adjusted according to what happens to inflation and to Shetland trade.
120 The proposal is a substantial help, although we still look for further help on the question of freights and fares generally. Like other hon. Members, I am grateful to the Government for introducing the undertakings. I am grateful to the Minister for explaining the percentages and the totals involved. There has been considerable interest in my constituency about the way in which the figures and percentages would work out. They will help lines that are essential in dealing with bulk shipments that cannot be handled in any other way.
§ Mr. Norman Hogg (Dunbartonshire, East)
It was inevitable, I suppose, that the hon. Member for Argyll (Mr. MacKay) should question why West Central Scotland Members have been seeking to contribute to the debate. The answer is simple. There is an interest in these matters that goes beyond the islands. Finance is involved that will be met by the taxpayers as a whole. The islands are immensely important to the economy of Scotland and the United Kingdom. When one considers the importance of Shetland and the Western Isles, it is not unreasonable that other hon. Members should make a contribution. I hope that we will receive answers to some of the questions posed by the hon. Member for Glasgow, Garscadden (Mr. Dewar).
The total cost is a matter of some interest. It is known that Norway subsidises its ferries to the extent of £30 million. I should like to know what the arrangements in Norway mean in practical terms for the industry.
The undertakings have an importance for the island communities, not all of which are as prosperous as Shetland or anything like it. Some are depressed and have a long history of decline. At the same time, they have demonstrated that they are willing to fight for their survival. Many hon. Members would strongly support that aim. Even if the undertakings were to help only minimally, they would command my support. They have real importance for the constituency of the right hon. Member for Western Isles (Mr. Stewart).
When I served as a member of the transport users consultative committee for Scotland, which I suppose is another justification for contributing to the debate, I heard a good deal of the complaints that users had of the services. None the less, what kept coming through all the time was the importance that these services had to the various communities. Many of the complaints were about frequency and the failure sometimes of the service to make adequate provision. I am sure that the hon. Member for Banff (Mr. Myles), who served with me on the committee, will recall many of the arguments that we had with the operators, who seemed determined to support the image of timelessness that is often associated with the Western Isles. It is that image that astonished me when I was reading a newspaper—I am sure that you are never without a copy, Mr. Deputy Speaker—entitled the Stornoway And West Coast Advertiser. It was the edition for the week ending 27 December, which carried the legend:May I wish all my constituents from Muckle Flugga to the Mull of Kintyre a very happy Christmas, and may 1980 take all the people of Scotland a step nearer prosperity and peace.That edition appeared two days after Christmas and, of course, it was the wrong year. I am sure that the right hon. Member for Western Isles will ensure that Mrs. Winifred Ewing is acquainted with what year it is.
121 The debate affords an opportunity to say something about the road equivalent tariff. We urgently require the Government's observations on the questions that have been put tonight. A statement was promised in 1981, and it would be helpful if we were to have that statement tonight. That is probably asking too much. However, I hope that we shall get an answer very soon. The interest in RET is considerable, not least in the transport industry in Scotland. The Scottish transport group produced a paper containing comments on sea transport to the Scottish islands. That has been with the Government for some time and it would be useful to know exactly what the Government feel about those observations. I thought that they were by far and away the best informed and the best argued of the comments made upon the consultative paper.
§ Mr. John MacKay
It might help the House if the hon. Gentleman were to agree with me that basically the Scottish transport group's paper is not in favour of RET and proposes an alternative method of helping the islands.
§ Mr. Hogg
It contained a number of arguments. The merits of the paper lie in its contribution to the debate of RET. That is why we should have the Government's observations as soon as possible.
The Highlands and Islands Development Board has been talking about RET since 1974. The Scottish transport users consultative committee has expressed its views. Again, it would be helpful to have the Minister's comments at the appropriate time. I appreciate that this is not the occasion for him to comment. However, I hope that we shall have very soon the Government's response to bodies that are important to the islands that are served by the ferries. I hope that we shall be given the answers that we are seeking.
§ Mr. John Maxton (Glasgow, Cathcart)
Like my hon. Friend the Member for Dunbartonshire, East (Mr. Hogg), I, too, should satisfy the curiosity of the hon. Member for Argyll (Mr. MacKay) as to why we are speaking on this issue.
There were two reasons why I decided to take part in the debate. First, I am glad of the opportunity to welcome State intervention in the economy, from whichever part of the House it comes. The undertaking is about State intervention to help the economy. I was surprised and pleased to hear the Minister and the hon. Member for Argyll give such a warm welcome to the subsidies. If we were to suggest, as we have on many occasions, that other elements of public transportation should be subsidised more heavily, we know what noises we would hear from the Conservative Benches.
I welcome the undertaking because public transport should receive Government support. However, it should be not only for the island communities in Scotland but for public transport across the whole sector. If we look at Norway and other European countries to see what they do in terms of State subsidies in their public transport systems, we will find that the subsidies apply not only to island ferries but to a much wider sector. There is also a much higher level of subsidy than in Britain.
Secondly, the islands of Scotland are not only an important part of the economy of Scotland but an important part of the leisure of Scotland. For a long time, Glasgow and the West of Scotland have considered the 122 islands as places where many people, in my constituency and elsewhere, take their holidays. I admit quite proudly that I regularly holiday on one of the islands. During my time there I discuss with the islanders the island economy and the effects of the ferry charges on the islands. When the consultative document was published, I sent it to friends on the island of Arran. I asked for their comments. They kindly sent them to me, and I forwarded them to the Minister. Therefore, I have some stake in this discussion.
We welcome the undertakings. We welcome any subsidy that will improve the life and prosperity of those who live in the island communities. It is a matter not only of the more remote islands represented by the right hon. Members for Orkney and Shetland (Mr. Grimond) and Western Isles (Mr. Stewart), but of the inner islands of the Clyde and elsewhere. They are affected by subsidies. They are as dependent on shipping as the outer islands. In some respects they are more dependent. The islands of Arran, Bute and Cumbrae do not have an airstrip. They have no air transportation, as do some of the more remote islands. If there is a shipping strike or some breakdown in service their connection is cut. Any form of subsidy to those islands is extremely important.
The ferry charges make a profound difference to the way in which the islanders live. As the islands become increasingly dependent upon tourism, the more important become the ferries. Tourism is the major source of income for many of the islands. I see that the right hon. Member for Western Isles is shaking his head. It is true that for the inner islands tourism is now the basic industry. At a time of a strong pound and increasing inflation foreigners are not attracted to Britain. It is, however, attractive to Britons to holiday abroad if they have any money to do so. Therefore, it is difficult for the islands to attract tourists if the ferry charges for a car and family, which are high, are added to the cost of the holiday. For example, some £40 has to be found even before paying hotel bills. That makes a difference.
That is one reason why I looked with considerable interest at the RET proposals. I accept that there are some reservations about them, but in most cases taking a car by ferry is cheaper, with the exception of one or two of the further islands. I accept the point which has been made on that, but the fact is that for freight and commercial vehicles in every instance it is cheaper, and for passengers in every instance it is cheaper. For nearly all the inner islands the costs are lower, and I suggest that it is with these islands that there is a greater movement of cars back and forth on the roll-on/roll-off ferries than there is perhaps with the further reaches of the Scottish islands.
Therefore, although I have some reservations, I should welcome the Minister's observations on RET, and I should welcome some attempt—if the Government will not introduce RET—at least to bring in a scheme which would lower the fares on the ferries and other shipping to the sort of level proposed in the appendices to their consultative paper. That is the only way by which these island economies will survive. If they do not have fairly massive subsidies, they will not be viable.
I take the island of Arran as an example. Until the mid-1960s it looked as though an island of that size and as close as that to the mainland could become almost totally depopulated. An upsurge of tourism in the mid-1960s through to about 1974–75 stabilised the population and made it look as though the island was again becoming 123 viable, but the decline in tourism since then has again put the island in jeopardy. I am sure that the same must be true of other Scottish islands as well.
Therefore, any way by which the Minister can introduce yet greater subsidies for transport to the islands will be welcomed not just by Members representing island constituencies but, I believe by all Scottish Members of Parliament as a way of ensuring that the way of life of whole communities and the communities themselves will survive in the future.
§ Mr. Rifkind
I thank hon. Members on both sides who have given, I think, an unqualified welcome to these undertakings.
The hon. Member for Glasgow, Garscadden (Mr. Dewar) asked a number of questions, to which I shall now briefly respond. First, he asked whether the sums to be paid to these companies in the current year come under the £1.6 million total to which he referred. I can tell him that the £1.6 million is the figure which P and O is receiving for the current year, and the sums to which I have referred tonight, which in the current year will add up to about £150,000, will be extra sums made available out of existing resources within the Scottish Office but in addition to the sum of £1.6 million.
Second, the hon. Gentleman asked about the effect of any proposed increase in fares which individual companies might wish to introduce, and he wanted to know whether that would need the consent of the Secretary of State. Under the terms of the undertaking, any intention to increase fares has to be notified to the Secretary of State so that he may say whether he wishes to give his consent. In general, it would not be our desire to interfere with what are essentially the internal commercial decisions of an individual company, but, clearly, that is information which would have to be passed to the Secretary of State and would be considered on its merits at the time.
§ Mr. Dewar
I am grateful for that clarification because, from a reading of the undertakings, I thought that it might be only the discount, if the Minister follows me, that needed the permission—in other words, a variation from the 12½ per cent. and the 42½ per cent. Is the Minister saying that if there is an actual increase in the figure on which that discount is calculated it is at least open to the Scottish Office to refuse to allow that increase if it wants to?
§ Mr. Rifkind
At this stage, the Secretary of State has indicated the sums which will be paid. Clearly, if an individual company were to change its tariff, that would affect the percentage which the subsidy reflected. In other words, at the moment it is intended that the subsidy should be 12½ per cent. in one direction and 42½ per cent. in the other. We have not given, as it were, an open-ended commitment on that. We have said that that is the percentage which the present sums represent, which the Government believe to be appropriate.
If an individual company could unilaterally change the tariff and thereby bring upon the Government an automatic obligation to increase the subsidy, that would be an irresponsible arrangement for any Government to come to. What we have therefore said is that if a company wishes 124 to increase the tariff it has to receive the consent of the Secretary of State in the terms of the undertakings which provide a subsidy towards the tariff concerned,
§ Mr. Dewar
May I clarify that? Is the Minister saying that the undertaking is not to be 12½ per cent. and 42½ per cent. but certain figures which constitute that percentage of the present tariffs, and if there is a wish to increase the tariffs so that the value or cost of those percentages increases that would not be possible without the Minister's specific permission?
§ Mr. Rifkind
The Government would hope to maintain these percentges, and if the increase that the companies seek is reasonable in all the circumstances the Government might feel able to increase the subsidy proportionately. What we cannot do is to give an open-ended commitment, to be used at the sole discretion of the individual company, which brings in its wake an increased financial commitment by the Government. I see that the hon. Gentleman appreciates that.
Both the hon. Gentleman and the right hon. Member for Orkney and Shetland (Mr. Grimond) asked about the capital grants that might be available, in particular to Glenlight Shipping Ltd. The position is that the company has been involved in capital works in its services, and my right hon. Friend the Secretary of State took the view that it would be helpful to include in the undertakings at least a power for him to give assistance in this direction in case any future technological innovations would sufficiently benefit the island communities to justify the consideraton of a Government grant. At the moment we have no indication of any such application, and we think that it is not highly probable that any such grant will be provided, but it is thought right to have some discretion in this matter.
The hon. Members for Garscadden and for Dunbartonshire, East (Mr. Hogg) appeared to rebuke the Government for the delay in making a firm announcement on the question of further support for the islands and on the future of RET. I do not think that it is up to Labour Members to rebuke the Government on any question of delay in providing further support for the island communities. During the period of the Labour Government the amount of financial support to the ferries in Scotland was reduced in real terms. One should compare that with what this Government have done at a time of declining public expenditure. We have increased the subsidy to Caledonian MacBrayne from £3½ million to £5 million, produced a new subsidy for P and O services, and arranged the bulk cargo support in the undertakings. I think that hon. Gentlemen will therefore appreciate that this Government have done more in a year and a half to help the island communities than the previous Administration did during their term of office.
On the subject of RET, I deny any question of undue delay on the part of the Government. We issued a consultative document last summer and we said at the time, and we have said ever since, that at the beginning of this year we would announce our conclusions on the consultations that we would have. While the hon. Member for Garscadden is undoubtedly correct in saying that today constitutes the beginning of this year, so will next week and perhaps even next month. The "beginning of this year" is the phrase that the Government used, and we did not 125 indicate any specific date. However, I assure the hon. Gentleman that that commitment will be kept in the terms that it was given.
The hon. Member for Garscadden and my hon. Friend the Member for Argyll (Mr. MacKay) drew attention to the fact that Caledonian MacBrayne and the Scottish transport group are anxious to know as soon as possible what their subsidy will be for the coming year, and I understand the reasons for that. We expect to indicate in the very near future what that sum will be. That is likely to be at an earlier date than has been possible in previous years, when either late January or early February was the time given to the Scottish transport group, so compared with previous years an early decision is highly probable.
My hon. Friend the Member for Argyll and one or two others, in referring to the principle of RET, asked about the Norwegian system. They will appreciate that tonight is not the occasion on which to go into the details of the rate equivalent tariff as it is seen by other countries, but my hon. Mend is correct in saying that the view that there is some sort of rigid system of RET—or indeed a scientific system—in Norway is wrong. The system used there is of a much more rough and ready nature.
I shall consider whether the conclusions that we drew from our recent visit to Norway should be made available for more public discussion, but one of the most lasting impressions that I received when I went to Norway was when I was informed by the Norwegian Minister responsible for these matters that, as half of the Members of the Storting had ferries in their constituencies, it would appear that a debate of the kind that we are having here this evening would result in contributions from about half of the Norwegian Parliament if they were all to speak to their constituency interests. Therefore, the matter is on a different scale in Norway from that in the United Kingdom.
The right hon. Member for Western Isles (Mr. Stewart), whom I thank for his welcome to these undertakings, mentioned the problem of the transportation of bottled gas in his constituency. I undertake that the Department will consider the right hon. Gentleman's point and see what is possible in this regard.
I thank those right hon. and hon. Members who have welcomed these proposals. I am glad that they recognise, as do the Government, that it is essential that Scotland's island communities be given the fullest opportunity to develop their economic and social structure. I assure the hon. Member for Glasgow, Cathcart (Mr. Maxton) that this Government have never been against the concept of helping the island communities. The concept of an indiscriminate subsidy may appeal to the hon. Gentleman, although that is what the present Government and the Conservative Party have always rejected. However, given that these were commitments that were contained in our election manifesto some time ago, he will appreciate that in the Government's view Scotland's island communities deserve the fullest support and that the Government, as we have shown already, intend to continue with a high degree of support in order to preserve these communities.
§ Question put and agreed to.
That the draft Undertaking between the Secretary of State for Scotland and Hay and Company (Lerwick) Limited and John Fleming and Company Limited, which was laid before this House on 5th December, be approved.
That the draft Undertaking between the Secretary of State for Scotland and Glenlight Shipping Limited and Clyde Shipping Company Limited, which was laid before this House on 5th December, be approved,
That the draft Undertaking between the Secretary of State for Scotland and Shetland Line Limited and Melton Securities Limited, which was laid before this House on 5th December, be approved—[Mr. Rifkind.]